NEW YORK—Stocks capped off another strong week with a broad rally, the dollar extended its gains and Treasurys fell, as a bigger-than-expected rise in consumer sentiment bolstered the view of an economy that is faring better than some had feared.

Brendan Conway outlines the Friday trading session, including the price of gold, consumer sentiment and European financials being in focus on Wall Street. Photo: Getty Images.

Brendan Conway lists keys stocks and commodities to watch on Friday, including Aruba Networks and the price of gold. Photo: Getty Images.

The Dow Jones Industrial Average climbed 121.18 points, or 0.8%, to 15354.40. A surge higher in the final hour of trading, which has been a familiar pattern during the market's extended rally, propelled the Dow to its third record close in four sessions.

The S&P 500 rose 2.1% this past week, the fourth-straight weekly gain, as the market shrugged off Thursday's biggest one-day decline in the benchmark indexes since May 1.

"All systems are go," said Peter Kenny, managing director at trading firm Knight CapitalKCG-5.60% Markets. "The fundamental metrics that are driving the market are sound. It's difficult to be cynical of a market that continues to move higher with [economic] fundamentals that support the move."

The dollar rose above 103 yen for the first time in four years. Treasurys declined, pushing the yield on the 10-year note to 1.95%.

A preliminary reading of the Thomson-Reuters/University of Michigan consumer-sentiment index for May rose more than expected to help fuel Friday's rise. And the Conference Board's Leading Economic Index for April increased, exceeding forecasts.

"Ultimately, we need to get the consumer to be more of a factor in the economy," said Jeff Morris, head of U.S. equities at Standard Life InvestmentsSL.0.55% in Boston, which oversees $272.6 billion in assets. "The market got a confirming data point today."

The strong data helped the more economically sensitive sectors, such as energy, industrials and financials, pace the market's gains. Banking firm J.P. Morgan Chase and aerospace company BoeingBA0.81% were the top advancers within the Dow.

Any sign of improvement in the U.S. economy adds to expectations that the Federal Reserve can begin to phase out its bond-buying program. Friday's reading on consumer sentiment, coming on top of signs that a debate is heating up within the central bank, helped buoy the dollar and weigh on Treasurys.

ENLARGE

One of the features of the market's rally has been the recent outsize gains seen in stocks that had previously been favorites of "short sellers," or those who make bets that stocks will fall.

Tesla MotorsTSLA-0.24% which had more than 40% of its free-floating shares sold short, has shot up 19% this week, and 64% since reporting its first-ever quarterly profit on May 8.

Among other stocks that had high percentages of their free float sold short, Supervalu has run up 19% since April 30 and GameStopGME-0.67% has climbed 14%. The S&P 500 is up 4.4% so far this month.

Overseas markets helped get the session started on a positive note. The Stoxx Europe 600 advanced 0.2% amid strength in the auto sector. Data showed the European Union market for new passenger cars in April expanded for the first time since September 2011.

In Asia, China's Shanghai Composite Index climbed 1.4% as hopes of increased government spending on a wide range of investment projects lifted coal and construction companies. Japan's Nikkei Stock Average rose 0.7%, finishing at a 52-week high, with a 3.6% advance for the week.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.